If Ram Nation can give up one unit of future consumption and as a result increase its current consumption by 0.96 units, what must be its real rate of interest.need answer
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If Ram Nation can give up one unit of future consumption and as a result increase its current consumption by 0.96 units, what must be its real rate of interest.need answer
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- If Ram Nation can give up one unit of future consumption and as a result increase its current consumption by 0.96 units, what must be its real rate of interest. Answer this questionanswerIf Ram Nation can give up one unit of future consumption and as a result increase its current consumption by 0.96 units, what must be its real rate of interest. I want answer
- What must be real rate of interest?If Ram Nation can give up one unit of future consumption and as a result increase its current consumption by 0.96 units, what must be its real rate of interest. None6. The multiplier effect Consider a hypothetical economy where there are no taxes and no foreign trade, and households spend $0.75 of each additional dollar they earn and save the remaining $0.25. The marginal propensity to consume (MPC) for this economy is 0.75 ; the marginal propensity to save (MPS) for this economy is 0.25 ; and the multiplier for this economy is 4 Suppose investment spending in this economy increases by $100 billion. The increase in investment will lead to an increase in income, generating an increase in consumption that increases income yet again, and so on. Fill in the following table to show the impact of the change in investment spending on the first two rounds of consumption spending and, eventually, on total output and income. Hint: Be sure to enter a negative sign in front of the number if there is a decrease in consumption. Change in Investment Spending = $100 billion First Change in Consumption = billion Second Change in Consumption = 24 billion Total…
- When comparing two projects with different lives, why do you compute an annuity with an equivalent present value (PV) to the net present value (NPV)? A. so that the projects can be compared on their cost or value created per year B. to reduce the danger that changes in the estimate of the discount rate will lead to choosing the project with a shorter time frame C. so that you can see which project has the greatest net present value (NPV) D. to avoid complications arising from alternating cash inflows and outflows O E. to ensure that cash flows from the project with a longer life that occur after the project with the shorter life has ended are consideredThank you!In a few sentences, answer the following question as completely as you can. The notion that money has time value is based on the existence of a non–zero opportunity rate (i.e., a rate of return at which it is possible to invest). Why is the opportunity rate so important? Construct an example that shows, with an opportunity rate of 0%, that the value of $1 received today will be $1 in the future.
- This question will compare two different arbitrage situations. Recall that arbitrage should equalize rates of return. We want to explore what this implies about equalizing prices. In the first situation, two assets, A and B, will each make a single guaranteed payment of $100 in 1 year. But asset A has a current price of $80 while asset B has a current price of $90.a. Which asset has the higher expected rate of return at current prices? Given their rates of return, which asset should investors be buying and which asset should they be selling?b. Assume that arbitrage continues until A and B have the same expected rate of return. When arbitrage ceases, will A and B have the same price?Next, consider another pair of assets, C and D. Asset C will make a single payment of $150 in one year while D will make a single payment of $200 in one year. Assume that the current price of C is $120 and that the current price of D is $180.c. Which asset has the higher expected rate of return at current…2. An investment has an installed cost of $412,670. The cash flows over the four-year life of the investment are projected to be $212,817, $153,408, $102,389, and $72,308. If the discount rate is zero, what is the NPV? If the discount rate is infinite, what is the NPV? At what discount rate is the NPV just equal to zero? Sketch the NPV profile for this investment based on these three points.Assume a finite state economy with three assets whose payoff matrix is given by 30 20 50 D = 20 15 35 (a) Suppose that the asset prices are $28, $18, and $47, respectively. Is there an arbitrage opportunity in the market? (b) If the price of the third asset reduces to $46, is there an arbitrage oppor- tunity in the market?
